Food industry freezes prices on basic items

Several supermarkets and food producers in Russia have agreed to a three-month price freeze on staples like bread, milk, eggs and cooking oil in an effort to tackle the country's spiralling inflation problem.

The deal was signed with the Ministry of Agriculture and will keep prices on hold until the end of January 2008.

Russia's largest milk producers Wimm-Bill-Dann, Unimilk and retail chains like X5, Auchan, Metro Cash and Carry are taking part in the measure.

The news is being welcomed by consumers, who have seen a 40 per cent price hike in some foodstuffs in recent months.

The measure is not expected to lead to difficulties for the companies involved.

However, some officials say freezing prices could be a curse for the Russian economy. 

Finance Minister Aleksey Kudrin has already voiced his concern, saying that while it’s important to stabilize prices, a price freeze is unrealistic in a market economy and could lead to distorted price signals for producers.

Market analysts agree, saying it may result in rising prices for other food categories. 

They also say it could lead to monopolisation of the market by larger producers and retailers, while smaller companies might find it more difficult to compete.

And after the agreement's term expires, the question of further price hikes will come into the spotlight once again.